A report by the WorkCover Independent Review Office cited the case of a factory worker whose leg was crushed by machinery and partially amputated. An insurer initially denied him a prosthetic limb.

The findings have prompted criticism the system is skewed towards insurers and employers.

The office, led by Kim Garling, was set up in late 2012 to help workers dispute decisions about their entitlements under the reformed workers compensation regime.

As part of the changes, an insurer, rather than a worker's doctor, determined their capacity to work after an injury.

But in its first annual report to Parliament, the office said WorkCover had repeatedly ignored requests that insurers be required to tell injured workers about the advice service and their appeal rights.

It said the new system created "a gap … which disadvantages workers from obtaining assistance and an explanation of their rights and entitlements".

Under the law, both insurers and workers were restricted from getting legal advice, which supposedly ensured both parties were on an equal footing.

But the government's intention had "failed", the report said, and insurers were using lawyers on work capacity decisions. This "left the injured worker at a double disadvantage" and those with psychological injuries were worst affected.

The report noted insurers commonly refused to "approve treatment recommended by the worker's doctor". In the case of the man who sought a prosthetic, the office contacted the insurer, which eventually accepted liability and provided it.

Finance and Services Minister Andrew Constance welcomed the report and the "blunt account of WorkCover's performance".

He said the office was established to be a "strong watchdog … I am glad to see that the system is working".

Mr Constance said WorkCover would address the issues raised and some had already been resolved.

But Unions NSW deputy assistant secretary Emma Maiden said the report showed the system was "skewed against" workers, and "the only people that are really benefiting from these changes are insurers and employers".

A WorkCover spokeswoman said it was working with the office "to promote its services", including putting fact sheets on its website.

Referrals to the office were also provided by its customer service centre and other information sent to injured workers, she said.